Sustainability-related disclosures

Date of publication: March 10, 2021.

Section titled “Sustainability-related disclosures, updated August 30, 2023.

Information regarding principal adverse impact, updated June 15, 2023.

Section titled “Sustainability-related disclosures”, published Dec 30, 2022.

Information regarding principal adverse impact and transparency of the promotion of environmental or social characteristics of the Altor Funds, updated Dec 15, 2022.

Information regarding principal adverse impact, updated Nov 1, 2022.

Integration of sustainability risk in our investment decision-making process

As stated in Altor Fund Manager AB’s (“Altor”) Responsible Investment & Ownership (“RIO”) policy being a world-class company and a world class investor includes ensuring high environmental, social and governance (ESG) standards which goes hand-in-hand with Altor’s longer-term ownership horizon. The commitment is intended to ensure that Altor contributes to the creation of companies that foster a sustainable future.  Altor is of course committed to adhering to the EU’s Sustainable Finance Disclosure Regulation (SFDR) ((EU) 2019/2088) and making available sustainability-related information with respect to the funds and the investment process.

Sustainability matters are typically considered already in Altor’s early sourcing discussions in the context of industry, geographic scope, and maturity of potential targets. In the due diligence process, it is mandatory to present and consider the sustainability risk profile of a target. Altor has a formalized risk management framework, encompassing the investment process from pre-acquisition due diligence to investment monitoring. Prior to each investment a standardized questionnaire, referred to as the Risk Summary and containing a sustainability section, is distributed to the investment team for completion. Questionnaires are collected, reviewed, and approved by Altor’s Risk Committee as well as in scope for internal audit. Several investment opportunities have historically been disregarded due to sustainability concerns.

Beyond the investment decision-making process Altor also considers sustainability risk profiles post-acquisition through mandatory annual discussions at the board level.

More information on how Altor integrates sustainability in its investment decision-making and ownership process can be found in Altor’s RIO policy.

Integration of sustainability risks into remuneration policies

Altor has adopted a remuneration policy which is consistent with Altor’s integration of sustainability risks in its investment processes. Remuneration to employees is determined on the basis of an annual performance review, and both financial and non-financial criteria are taken into account in the review. The non-financial criteria include compliance with Altor’s values (of which one being sustainability) and compliance with the firm’s Responsible Investment and Ownership Policy (as relevant depending on each employee’s role and function), which outlines how Altor manages sustainability-related risks and opportunities throughout its screening, sourcing, and active ownership.

No consideration of adverse impacts of investment decisions on sustainability factors

Altor is not required to and does not currently consider adverse impacts of its investment decisions on sustainability factors on an entity level according to Article 4 of the SFDR. This is because Altor is not currently in a position to obtain and/or measure all the data which would be required according to the SFDR to report systematically, consistently and at a reasonable cost with respect to our investment strategy. Furthermore, a majority of Altor’s products (i.e. funds) – Altor Fund IV (No. 1) AB, Altor Fund IV (No. 2) AB (together “Altor Fund IV”), Altor Fund V (No. 1) AB and Altor Fund V (No. 2) AB (together “Altor Fund V”) – were established and closed for new investors before the SFDR entered into force. Consequently, we cannot exhaustively enforce the reporting from minority investments in the aforementioned funds that would be needed in order to consider principal adverse impacts (“PAI”) of investment decisions on sustainability factors in accordance with the SFDR.

We believe that our main challenge to be able to consider PAI currently is to ensure the data quality and reporting timeliness. However, we  aim at being able to fully consider and report on PAI of investment decisions on sustainability factors according to Article 4 of the SFDR by 2025. As such, we have an ongoing process of developing our processes for obtaining and measuring the data needed and we will be able to report on our progress and certain data relating to PAI of investment decisions on sustainability factors during 2023 and 2024 in our annual sustainability report. Please note that such reporting will be made separately from, and will not constitute, the reporting of PAI as is set out by the SFDR and the Commission’s Delegated Regulation to the SFDR ((EU) 2022/1288).

Consideration of principal adverse impacts on sustainability factors for Altor Fund VI and Altor III Co-Invest

Altor Fund VI (No. 1) AB and Altor Fund VI (No. 2) AB (together “Altor Fund VI”), and Altor III Co-Invest (No. 1) AB and Altor III Co-Invest (No. 2) AB (together “Altor III Co-Invest”) consider principal adverse impacts on sustainability factors on a product level according to Article 7 of the SFDR. This is further elaborated upon in Altor Fund VI’s and Altor III Co-Invest’s pre-contractual disclosures.

Sustainability-related disclosures

Summary (for the summary in Swedish, please click here)

The Funds promote environmental or social characteristics but do not have as its objective sustainable investment. The Funds promote in particular the following environmental and social characteristics, which all relate to the UN 17 Sustainability Development Goals (“SDGs”).

• Diversity and inclusion (relates to SDG 5, Gender equality);
• Working conditions and living wage (relates to SDG 8, Decent work and economic growth);
• Environmental performance and circular resource management (relates to SDG 12, Responsible consumption and production); and
• Climate action (relates to SDG 13, Climate action).

The Funds’ investment strategy used to meet the environmental and social characteristics promoted by the Funds include for example applying an “exclusionary list” meaning that the Funds will not directly invest in certain companies and being a signatory to the UN Principles for Responsible Investments (UN PRI).

Altor’s policy to assess good governance practices of the portfolio companies of the Funds includes that all portfolio companies are required to follow Altor’s ESG Standards (as defined below), including regarding governance, as listed in Altor’s Responsible Investment and Ownership Policy (the “RIO policy”).

The abovementioned environmental and social characteristics that the Funds promote shall be attained by, inter alia, compliance with the standards listed in the RIO policy (“Altor’s ESG Standards”) which applies both to Altor and the portfolio companies which the Funds invest in. Altor’s ESG Standards and the environmental and social characteristics promoted by the Funds will be monitored via Altor’s annual sustainability performance monitoring process. The monitoring process will entail that sustainability metrics, at least as per the ESG Data Convergence Initiative (www.esgdc.org), are collected from the portfolio companies of the Funds via a digital platform and thereafter analysed versus certain factors. The aforementioned performance monitoring process will be internally reviewed regularly, and at least on an annual basis, in order to ensure its continued usefulness and efficiency.

Altor’s Sustainability performance monitoring process will be used also as the methodology to measure how the social and environmental characteristics promoted by the Funds are met.

Altor uses sustainability metrics reported from portfolio companies as the data source to attain the environmental and social characteristics promoted by the Funds. To ensure proper data quality Altor have engaged a third-party advisor that will perform limited assurance on the data provided.

The major limitation with using the abovementioned sustainability performance monitoring process and using reports from the Funds’ portfolio companies that Altor has identified is if portfolio companies do not report on the requested data and/or report data with lacking quality and/or coverage for their respective operations. Altor will work closely with portfolio companies to ensure that the companies understand the importance of reporting as well as how they should report, in order to minimise such limitation. Furthermore, Altor deems the risk of portfolio companies not reporting and/or providing insufficient reports as low.

The due diligence of potential underlying assets of the Funds are conducted inhouse and/or by external advisors. Sustainability matters are typically considered already in early sourcing discussions. In the due diligence process, it is mandatory to present and consider the sustainability risk profile of a potential investment. As part of completing such sustainability risk profile, the investment team needs to fill out a standardized questionnaire, referred to as the Risk Summary which also contains a detailed sustainability section. The Risk Summary is reviewed and approved by Altor’s Risk Committee before Altor’s board of directors may decide whether to take the potential investment forward.

Altor always acts as an active owner. Altor’s active ownership includes that all the Funds’ portfolio companies shall establish a Sustainability point of contact within their own organisation. Furthermore, sustainability shall be part of each portfolio company’s value creation agenda, and following any Fund’s investment in a new portfolio company, assessments shall be made to integrate Sustainability to the 3-year value creation master plan that Altor helps draft for each portfolio company.

No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the Funds.

No sustainable investment objective

The Funds promote environmental or social characteristics but do not have as its objective sustainable investment.

Environmental or social characteristics of the financial product

The Funds seek to manage up performance across all material sustainability topics, and promote in particular the following environmental and social characteristics, which all relate to the UN 17 Sustainability Development Goals (“SDGs”) adopted in 2015 as part of the 2030 Agenda for Sustainable Development.

• Diversity and inclusion (relates to SDG 5, Gender equality);
• Working conditions and living wage (relates to SDG 8, Decent work and economic growth);
• Environmental performance and circular resource management (relates to SDG 12, Responsible consumption and production); and
• Climate action (relates to SDG 13, Climate action).

Investment strategy

The Funds are established with the objective of realising attractive private equity returns through equity, equity related and/or debt investments principally in buyouts and growth capital transactions and principally in portfolio companies in Denmark, Finland, Norway, Sweden but also DACH. The Funds’ investment strategy used to meet the environmental and social characteristics promoted by the Funds include for example:

• Applying an “exclusionary list” meaning that the Funds will not directly invest in companies relating to certain different sectors/themes/countries;
• Investing with the ambition to uplift ESG standards and performance as per Altor’s Responsible Investment and Ownership Policy (the “RIO policy”) as a way to future-proof companies as Altor believes this to be part of its fiduciary duty;
• Being a signatory to the UN Principles for Responsible Investments (UN PRI) and placing emphasis on the four SDGs as described above.

The abovementioned “exclusionary list” can be found in the RIO policy, which may be found here.

Altor’s policy to assess good governance practices of the portfolio companies of the Funds includes that all portfolio companies are required to follow Altor’s ESG Standards (as defined in section “Monitoring of environmental or social characteristics” below), including regarding governance, as listed in the RIO policy. Furthermore, Altor annually asks and assesses several questions in regards to good governance to all portfolio companies. Such questions include, inter alia, whether the portfolio companies have a Code of Conduct policy, anti-corruption policy and third-party-whistleblowing processes in place and if the companies have been involved in violations of the UN Global Compact principles or OECD Guidelines for Multinational Enterprises.

Proportion of investments

The Funds do not intend to make sustainable investments based on a committed minimum proportion. However, any sustainable investments that the Funds may make, even though this is not the objective, will be reported on in the Funds’ annual reports, for the relevant reference period. The Funds intend to promote environmental or social characteristics  to a minimum percentage of 90 as regards direct exposures in each Fund’s portfolio companies.

A minor portion of the portfolio in terms of total net asset value, 10%, may be consisting of other balance sheet items that are not possible to align with environmental and/or social characteristics, for example, cash, cash equivalents, accounts receivable and accounts payable.

Altor makes the assessment that the Funds will not have any other types of exposures than direct exposure to the Funds’ portfolio companies.

Monitoring of environmental or social characteristics

The abovementioned environmental and social characteristics that the Funds promote shall be attained by, inter alia, compliance with the standards listed in the RIO policy (“Altor’s ESG Standards”) which applies both to Altor and the portfolio companies which the Funds invest in. The Altor ESG Standards include the below standards, among others, and the full list with additional detail can be found in the RIO policy here.

Environmental standards

• Being fully compliant with relevant local and international environmental legislation and conventions (zero incidents), in own operations and in the supply chain (material part of supply chain), and active screening and awareness of upcoming relevant regulation/standards.
• Having a 1.5 degree aligned near-term science-based target approved no later than by 2025, to focus on rapid deep emission cuts.
• Having a long-term net-zero target with a target date no later than 2050, but striving for 2045.

Social standards

• Committing to a living wage in own operations and throughout the supply chain, by guaranteeing wages and benefits paid for a standard working week meet, at a minimum, national legal standards, or industry benchmark standards, whichever is higher. In any event wages shall always be enough to meet basic needs and to provide some discretionary income.
• Actively promoting diversity by working towards fair representation (in line with industry standard) of underrepresented groups in employee recruitment and staffing of leadership positions, empowering minorities through training, addressing unconscious bias, creating an inclusive culture. In particular with regards to gender diversity.

Governance standards

• Maintaining high standards of business ethics, incl. being fully compliant with relevant local and international legislation and conventions on anti-corruption (incl. extortion and bribery), antitrust/fair competition and tax (zero incidents), and active screening and awareness of upcoming relevant regulation/standards.

Altor’s ESG Standards and the environmental and social characteristics promoted by the Funds will be monitored via Altor’s annual sustainability performance monitoring process. The monitoring process will entail that sustainability metrics, at least as per the ESG Data Convergence Initiative (www.esgdc.org), are collected from the portfolio companies of the Funds via a digital platform and thereafter analysed versus the following factors

• Altor’s ESG Standards in the RIO policy;
• Prior year performance; and
• Industry standard performance/benchmarks.

The abovementioned performance monitoring process will be internally reviewed regularly, and at least on an annual basis, in order to ensure its continued usefulness and efficiency. Cross-checks and spot-checks will also be made in relation to the analysis of the sustainability metrics provided by the portfolio companies and any unclear reports from a portfolio company will be followed-up upon without delay.

Methodologies

Altor’s Sustainability performance monitoring process will be used also as the methodology to measure how the social and environmental characteristics promoted by the Funds are met. As regards what the monitoring process will entail, please refer to the section “Monitoring of environmental or social characteristics” above.

Data sources and processing

Altor uses sustainability metrics reported from portfolio companies as the data source to attain the environmental and social characteristics promoted by the Funds.

To ensure proper data quality Altor have engaged a third-party advisor that will perform limited assurance on the data provided from the portfolio companies to the Funds.

The data will be internally processed at Altor and Altor’s current view is that it will not rely on any third-party estimated data.

Limitations to methodologies and data

The major limitation with using the abovementioned sustainability performance monitoring process and using reports from the Funds’ portfolio companies that Altor has identified is if portfolio companies do not report on the requested data and/or report data with lacking quality and/or coverage for their respective operations.

Altor will work closely with portfolio companies to ensure that the companies understand the importance of reporting as well as how they should report, in order to minimise the limitation mentioned above. As further described in section “Engagement policies” below, Altor is also an active owner in relation to, inter alia, sustainability matters and there is continuous communication between each portfolio company and Altor regarding sustainability related matters. Consequently, Altor deems the risk of portfolio companies not reporting and/or providing insufficient reports as low, resulting in that the risk of the abovementioned limitation affecting how the environmental and social characteristics promoted by the Funds are met also is low.

Due diligence

The due diligence of potential underlying assets of the Funds are conducted inhouse and/or by external advisors co-ordinated by the respective investment team established by each Fund and its advisor and dedicated for the relevant potential investment. Altor’s Investment Advisory Committee is ultimately responsible for the due diligence.

Sustainability matters are typically considered already in early sourcing discussions in the context of industry, geographic scope, and maturity of potential targets, especially with regards to exclusionary screening as per the exclusionary list in the RIO policy. In the due diligence process, it is mandatory to present and consider the sustainability risk profile of a potential investment. As part of completing such sustainability risk profile, the investment team needs to fill out a standardized questionnaire, referred to as the Risk Summary which also contains a detailed sustainability section. In the sustainability section, the investment team need to answer if certain ESG/sustainability topics are material or not, what current performance and risk is for the material sustainability topics of the potential investment compared to relevant industry average and/or regulatory requirements, and what future opportunity the team sees for the potential investment to reach the Altor ESG Standards as per the RIO policy.

In addition to the abovementioned, the due diligence includes an analysis of value creation opportunities, relevant legal, tax, financial or other value affecting factors.

The results of the due diligence are considered by the investment team in dialogue with the central Sustainability resources, who creates a proposal for a binding offer regarding the relevant potential investment if they deem the results satisfying. The proposal is then reviewed by the Investment Advisory Committee who decides whether to recommend that Altor’s board of directors decides to move forward with the binding offer. The proposal is also reviewed and assessed by both Altor’s Risk Committee and Risk Manager, as regards compliance with the relevant Fund agreement, as well as by Altor’s Investment Committee, before the board of directors may decide whether to take the potential investment forward. Included in the Risk Committee’s review is the abovementioned questionnaire, which is also approved by the Committee. Furthermore, the Risk Summary questionnaire is in scope for Altor’s internal audit.

Engagement policies

Altor’s investment and ownership approach is to act as an active owner, including forwarding Altor’s sustainability agenda, irrespective of a majority or minority ownership position in both private and public settings. Altor’s active ownership includes that all the Funds’ portfolio companies shall establish a sustainability point of contact within their own organisation that is responsible for the execution of the portfolio company’s sustainability related policy (or equivalent policies).

Sustainability shall be part of each portfolio company’s value creation agenda, and following any Fund’s investment in a new portfolio company, assessments shall be made to integrate Sustainability to the 3-year value creation master plan that Altor helps draft for each portfolio company. Furthermore, sustainability performance and risk matters shall be discussed at least twice a year by each portfolio company’s board of directors, and all portfolio companies shall at least annually report progress across material Sustainability metrics, at least as per the ESG Data Convergence Initiative (www.esgdc.org), to Altor, and upon occurrence and at least quarterly on any potential incidents.

Should any sustainability-related controversies occur in any of the portfolio companies, Altor will, where relevant, take the following measures

• Ensure that internal investigations are conducted;
• Reconfirm the appropriateness of the governance and compliance set-up with the aim of strengthened processes and capability training;
• Through the board of directors assess the appropriateness of the management team; and
• Ensure full cooperation with authorities.

In addition to the above, and as the most basic level of Altor’s active ownership, Altor of course also exercises its voting right at general meetings and participates in nomination procedures to influence the composition of the board in any of the Funds’ portfolio companies.

Designated reference benchmark

No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the Funds.